Analysts improve HDFC’s earnings outlook after stellar Q3 present

Housing Development Finance Corporation (HDFC)

Housing Development Finance Corporation (HDFC) saw its Adjusted Net Income before taxes jump 27% year over year to Rs.2,908 billion in the third quarter of FY21. Strong home sales and equally healthy home loan growth helped the mortgage gamer post excellent December quarter numbers.

Individual payouts rose 26% for the quarter versus a 32% increase in loan approvals year over year. The result was driven by an increase in Net Interest Income (NII), which saw robust growth of 26% year over year and 12% quarter over quarter (Qoq) at Rs 4.068 billion.

The strong demand for housing appears to be sustainable and not a case of suppressed demand. The lender said the month of December had its all-time high in terms of revenue, approvals and payouts.

Keki Mistry, CEO of HDFC Limited, said, “We continued to see strong growth in home loan demand and growth was better than expected in October when we were fairly bullish. Our individual loan approvals were up 32% from the December 2019 quarter. While loan approvals were 32% higher, payouts were up 26%. “

The surge in demand for residential property has not only continued, but accelerated one by one for the mortgage major. In the December quarter, 91% of single payouts were for property deals that closed in the past four months, suggesting that demand is likely to remain strong in the quarters ahead. HDFC’s net interest margin increased 20 basis points sequentially and increased 10 basis points year over year to 3.4%. The spread in the individual loan book was 1.94% and in the non-individual book 3.14%.

Analysts reacted positively to the performance, with some brokers even improving earnings estimates for the coming fiscal year. CLSA has raised HDFC’s earnings estimates for FY 22/23 by 4% to 5% due to higher margins. Morgan Stanely said HDFC’s payouts and revenue momentum were strong this quarter. Similarly, Credit Suisse found that the lender’s individual growth has remained strong and asset quality has remained stable with good provisions.

The collection efficiency for individual loans was 97.6% in December compared to 96.3% in September. Loans based on assets under management increased 9% year over year to Rs.5.52.167 billion from Rs. 5.05.401 billion in the third quarter of FY 20. Individual loans accounted for 76% of AUM in December. The individual loan disbursements increased by 26% compared to the corresponding quarter of the previous year. There has been growth in home loans in both affordable residential and high-end properties, according to HDFC.

In his report, Motilal Oswal Institutional Equities said, “Provisions at Rs 5,900 were much higher than our estimate of Rs 4,000.” % compared to the result for the fiscal year 22-23. A report by Emkay said HDFC had healthy growth and maintained stable asset quality. “HDFC was able to maintain healthy growth momentum of around 16% year over year due to an improvement in housing demand in various regions,” said Emkay.

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